UPS says slowing economy may weigh on first quarter
United Parcel Service Inc., the world’s largest package-delivery company, said it may not meet its first-quarter earnings target as U.S. economic growth slows.
Domestic shipments at UPS have dropped for six straight weeks, Chief Financial Officer Kurt Kuehn said today at an investor presentation in New York. Air deliveries have fallen faster than ground shipments. The declines make UPS’s per-share profit goal of 94 cents to 98 cents “difficult to achieve,” Kuehn said. He reaffirmed full-year guidance of USD 4.30 to USD 4.50.
The economic outlook for this year is “uncertain at best,’ Chief Executive Officer Scott Davis told investors. Lower interest rates and tax rebates that are part of a federal economic stimulus package may help reinvigorate demand, he said.
“I’m not ready to proclaim the quarter lost, and I’m not ready to proclaim the economy lost,” Davis said.
The 2 percent drop in domestic shipments the past six weeks is “definitely a risk,” he said. The Atlanta-based company’s domestic packages segment will continue to grow “at or above” gross domestic product over the long term, Davis said.
U.S. GDP rose at a 0.6 percent annualized rate in the fourth quarter, down from a 4.9 percent gain in the prior three months, the Commerce Department said Feb. 28.
UPS fell 85 cents, or 1.2 percent, to USD 1.94 at 4 p.m. in New York Stock Exchange composite trading. The shares are up 1.7 percent so far this year.
Expanding Overseas
Higher fuel costs, job losses and falling home values have dimmed growth prospects for the economy. It will expand 1.4 percent for all of 2008, the weakest since the last recession in 2001, based on the median estimate of 62 economists polled by Bloomberg from March 3 to March 10.
UPS will focus on expanding overseas sales to overcome slowing U.S. demand, Chief Operating Officer David Abney said.
The company is adding operations in 10 cities in China and buying seven Boeing Co. 747-400 wide-body freight airplanes, Abney said. He said India’s export volume jumped more than 25 percent last year, while European exports rose more than 10 percent.
“We think much of the current economic slowdown is discounted into UPS’s stock price and think the shares could strengthen once signs of a U.S. economic pick-up appear,” Jim Corridore, an equity analyst at Standard & Poor’s, wrote today in a note.
The UPS presentation came the same day the U.S. Postal Service said it plans to offer volume discounts and other price reductions. The program, beginning in May, includes express and priority mail that compete with some UPS products. This will be the first time the agency has offered such incentives.
Express Mail overnight delivery will switch to zone-based prices that are less expensive for closer destinations. Customers can get discounts for making purchases online and meeting volume minimums, the Postal Service said.
